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A Huge Fleet Of 117 Tankers Is Bringing Super Cheap Crude To China

While the rest of the world is tentatively coming out of lockdowns, China is taking advantage of the cheapest crude oil in years to stock up as demand is starting to return in the world’s largest oil importer, Bloomberg reported on Friday, citing tanker-tracking data it has compiled.At present, a total of 117 very large crude carriers (VLCCs) – each capable of shipping 2 million barrels of oil – are traveling to China for unloading at its ports between the middle of May and the middle of August. If those supertankers transport standard-size crude oil cargoes, it could mean that China expects at least 230 million barrels of oil over the next three months, according to Bloomberg. The fleet en route to China could be the largest number of supertankers traveling to the world’s top oil importer at one time, ever, Bloomberg News’ Firat Kayakiran says.

Many of the crude oil cargoes are likely to have been bought in April, when prices were lower than the current price and when WTI Crude futures even dipped into negative territory for a day.

Last month, emerging from the coronavirus lockdown, China’s oil refiners were already buying ultra-cheap spot cargoes from Alaska, Canada, and Brazil, taking advantage of the deep discounts at which many crude grades were being offered to China with non-existent demand elsewhere.

China was also estimated to have doubled the fill rate at its strategic and commercial inventories in Q1 2020, taking advantage of the low oil prices and somewhat supporting the oil market amid crashing demand by diverting more imports to storage, rather than outright slashing crude imports.

China’s crude oil imports jumped in April to about 9.84 million bpd as demand for fuels began to rebound and local refiners started to ramp up crude processing, according to Chinese customs data cited by Reuters.

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Every crisis including the coronavirus outbreak offers opportunities. China is seizing the opportunity of super-low oil prices to expand its strategic oil reserves before prices rise again. It is also stocking up on cheap LNG.

If these 117 very large crude oil carriers (VLCCs) are bringing some 230 million barrels of crude oil bought in April when oil prices were around $25 a barrel or less, then China could be saving an estimated $8 billion as a price difference from $60 in January to $25 in April.

Despite the outbreak, China’s crude oil imports in the first four months of 2020 averaged 10.11 million barrels a day (mbd) and were slightly higher than the same period of 2019.

Already some bullish factors supporting a recovery of oil demand and prices are starting to emerge. These bullish factors include an estimated US shale oil production decline of 4 mbd by the 10th of May according to the latest research by the respected US energy expert Philip Verleger, a gradual easing of the global lockdowns, the impact of OPEC+-led production cuts, China’s bouncing back at full speed and the prospect that the global glut is starting to decline possibly pushing the oil market into deficit as early as June.

Global oil demand is projected by the International Energy Agency (IEA) to be 8.6 mbd less in 2020 than in 2019. Still, it could take demand until 2021 to recover to 2019 levels.

As a result, oil prices could hit $40-$50 a barrel in the second half of this year and touch $60 early 2021.

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